D. H. Patkar & Co. vs. ITO ITAT “D” Bench, Mumbai Before B.R.Baskaran (AM) and Ramlal Negi, (JM) I.T.A. No.: 4524/Mum/2013 A.Y.:2009-10. Date of Order: 18th March, 2016. Counsel for Assessee / Revenue: Jignesh R. Shah / B. S. Bist

Facts
The assessee, a partnership firm, was engaged in clearing and forwarding agency business. During the year it paid the sum of Rs. 34.6 lakh as speed money to the dock workers on behalf of its clients. The AO took the view that these payments are in the nature of bribes and hence the same cannot be allowed as deduction as per the Explanation given u/s. 37(1) of the Act. The CIT(A) also confirmed the order of the AO.

Before the Tribunal, the assessee submitted that these expenses have been incurred on behalf of its clients and in support produced the copies of bills raised upon its clients. It was further submitted that the assessee was constrained to incur these expenses upon the instructions of its clients in order to get their job of loading and unloading done quickly. The payment was also justified on the ground that it was a prevailing practice to incentivise the dock workers by paying some extra charges to get the job done quickly. He submitted that these kinds of payments are not prohibited by law and hence the tax authorities are not justified in invoking the Explanation to section 37(1) of the Act to disallow the claim of the assessee.

Held
According to the Tribunal, the impugned disallowance merits deletion for the following reasons:

these payments have been made by the assessee on behalf of its clients and hence the same does not constitute its own expenditure;

even though the assessee has routed the expenditure and reimbursement received from its clients through the Profit and loss account, yet it is settled principle that the books of accounts of the assessee cannot be the sole determinative factor to decide about the nature of expenditure;

the AO has invoked the provisions of Explanation to section 37(1), but he has not cited the relevant law, which prohibits such kind of payments;

the assessee’s claim that it was paid to the workers has not been disproved.

Therefore, the Tribunal set aside the order of the AO and directed him to delete the disallowance.